APT: The Tax to End all Taxes?

The idea

Replace all existing forms of taxation with a single uniform tax on all transactions, known as the Automated Payment Transaction Tax. In practice, transactions would carry with them a charge (on both sides) that would be automatically calculated and collected. In this sense, the APT is best thought of as a brokerage fee – one that gets applied every time money moves in or out of a bank account.

Crucially, the APT would be implemented alongside the elimination of all other forms of taxation. It would replace income, corporation, and capital gains taxes, as well as fuel, estate, excise, and sales taxes/VAT.

Why it makes sense

The APT would be both unavoidable and straightforward to administer. By requiring banks to automatically collect the fee in real time, governments would be able to eliminate – or at least radically scale-down – their existing taxation bureaucracies. Individuals and businesses would never again have to file a tax return.

The APT would also broaden the tax base considerably (by a factor of ten according to some estimates). The rate could be set as low as 0.35% on each end of the transaction while remaining revenue neutral. For consumers, businesses, and employees, the levy would be barely noticeable.

A further advantage of APT is that the tax rate could be adjusted automatically to account for temporary revenue shortfalls, or, conversely, to simulate the economy. Any changes, moreover, to the tax rate would be transparent, predictable, simple, and applicable to everyone.

Could it happen?

The financial sector would strongly resist any attempt to implement the APT. Transactions in stocks, bonds, and currencies would constitute the bulk of the tax base under the APT system.

The APT would likely suppress liquidity and reduce the profitability of short-term trading. This could have severe consequences for the jurisdiction bold enough to implement the new tax first. That said, while the APT would be bad news for high-volume traders and short-term investors, there would be advantages. The abolition of income and corporation tax would certainly be highly attractive to long-term investors. Thus, while the APT might discourage speculative market activity and investment, it could in fact encourage lower-risk financial activities.

The APT also has left-leaning critics who contend that the tax would be regressive, since there’s no evidence to suggest that the wealthy engage in more transactions than the less well-off relative to income. There is, however, a straightforward response to such criticism. While the introduction of a flat rate might appear regressive, in cash terms the APT achieves equity and fairness in so far as the wealthiest portion of the population executes a disproportionate share of financial transactions. In any case, whether or not the APT is progressive is largely immaterial. The simple fact is that the tax burden of the poorest in society would be drastically reduced under the scheme.

If the APT is to ever become a genuine alternative, it will likely have to do so as part of an international conversation. The scale of the financial shock that an implementation of the APT would induce makes it unlikely that a single jurisdiction would introduce it unilaterally. Countries with major financial sectors like the US and UK will have to take the lead in considering the idea. But only public pressure will ensure that they do so.